Major fraud uncovered at the University of Wisconsin

University of Wisconsin-Oshkosh Chancellor Richard Wells sits down with USA TODAY NETWORK-Wisconsin for an interview about his tenure at UWO before retiring in August 2014.(Photo: Joe Sienkiewicz/USA TODAY NETWORK-Wisconsin)

OSHKOSH – Former University of Wisconsin-Oshkosh Chancellor Richard Wells is accused of overseeing the illegal transfer of more than $11 million in university funds to support five Oshkosh-area building projects.

A lawsuit filed Wednesday in Dane County by the UW System claims Wells and Tom Sonnleitner, retired UWO vice chancellor of administrative services, made illegal financial guarantees between 2010 and 2014 to secure backing for high-profile building projects on and around the Oshkosh campus, and later spent more than $11 million in university funds on foundation projects, according to the lawsuit filed in Dane County Circuit Court.

The lawsuit stems from an investigation launched in June into the financial relationship between the university and the Foundation after current Chancellor Andrew Leavitt raised questions about funding arrangements for the $12.5 million UWO Alumni Welcome and Conference Center.

According to the lawsuit, Wells and Sonnleitner violated state law in two ways: they illegally transferred university funds to the Foundation to pay for the projects, and they inappropriately wrote letters to lenders stating the university would back the Foundation’s borrowing for the building projects.

The UWO Foundation is a nonprofit organization that raises, manages, invests and distributes funds to support the university’s programs and initiatives. State law requires a one-way financial relationship between the entities that prohibits using state funds to support a private entity such as the Foundation.

The lawsuit seeks unspecified damages from Wells and Sonnleitner, and for them to repay the costs of the investigation and any future court action. Wells retired in 2014. Sonnleitner was suspended in May 2016 and retired three weeks later.

“I certainly see this as a setback and one that we will work through and move forward,” said Leavitt, who succeeded Wells as chancellor. “This university holds tremendous promise for the future of our students and this region and I know that we’ll persevere and get through this.”

Five projects questioned

The lawsuit claims five projects, including four built by corporate entities created by the Foundation for specific building projects, were improperly funded by the university.

» Best Western Premier Waterfront Hotel and Conference Center: A $15 million project that opened in 2013 as a partnership between the UWO Foundation and John Pfefferle and Rich Batley, partners in Appleton’s Copper Leaf Hotel. Court documents state UWO made five transfers of university funds to the UWO Foundation between May 2012 and August 2013, totaling $2.17 million. Those funds were repaid in full.

» UWO Alumni Welcome and Conference Center: A $12.5 million building that opened in 2014. More than 70 percent of funding came from money raised through the UWO Foundation. The Foundation still owes approximately $6.1 million for construction costs.

Wells and Sonnleitner authorized three transfers totaling $1.46 million in June 2012. The Foundation has repaid $1 million of those funds.

» Rosendale Dairy biodigester: A $10 million project built in 2013 on a dairy farm in Rosendale that captures methane from composted manure and turns it into electricity. The project’s funding included a $2 million federal economic stimulus grant. The Foundation owed $6.7 million on the loans as of June 2016, according to a UW System news release.

Eight payments totaling $4.14 million were made by UWO to the Foundation to support the project between February 2012 and June 2015, according to court records. Some of the transferred funds have been repaid, leaving $1.44 million left to recover.

Two of those transfers occurred during Leavitt’s tenure as chancellor. Leavitt was unaware of the transfers until April 2016, a UW System spokeswoman said.

In October 2014, Sonnleitner also entered the university into a lease agreement with the Foundation that obligated the university to pay $700,00 a year to use the biodigester. The university payments required by the lease were unconstitutional, the lawsuit claims.

First Business Bank was also granted a security interest as collateral for the Foundation’s debt. A representative of First Business Bank declined to comment Wednesday.

» WitzelDry Fermentation Anaerobic Biodigester: A facility built in 2011 that converts food and yard wastes into energy. The Foundation had $1.7 million in debt left to pay as of June 2016, according to the UW System.

Thirteen transfers totaling $2.33 million were made between June 2012 and October 2015. More than $1.81 million has not been paid back.

In June 2012, Sonnleitner also forgave a loan of $289,000 that had been made in 2010.

» Oshkosh Sports Complex: The complex includes Titan Stadium, the UW-Oshkosh Softball Park, Alumni Stadium and practice facilities used by multiple university sports teams. Titan Stadium was renovated in 2004 after a $10 million fundraising campaign that included J. J. Keller and Associates, the Oshkosh Convention and Visitors Bureau, the UWO Student Association, AT&T Advertising and the UWO Foundation, according to the UWO website. The Oshkosh Sports Complex is in good financial standing and UWO owns the property, the release stated.

Wells and Sonnleitner authorized five transfers to the Foundation that totaled $806,000 between June 2011 and April 2013, court documents state. None of those funds have been repaid.

Sonnleitner authorized two additional transfers to the Foundation in June 2015 that were not tied to any projects, and a third transfer in May 2016, three months after he was suspended by the university.Those transfers totaled an additional $344,00.

Memorandums of understanding

According to court documents, Wells and Sonnleitner used memorandums of understanding to guarantee that the university would back the Foundation’s debt.

Wells and Sonnleitner sent the memorandums to the Foundation to reassure board members, and similar agreements, called “comfort letters,” were sent to banks financing the Best Western Premier Waterfront Hotel & Conference Center, the Rosendale Biodigester, the Witzel Biodigester and the Oshkosh Sports Complex.

A fifth memorandum also blesses all “foundation-sponsored projects,” a “catch-all” phrase to refer to all of the Foundation’s enterprises, the report concludes.

Investigators were not able to find such an agreement for the Alumni Welcome and Conference Center.

Fallout

The university fired UW-Oshkosh Foundation Board President Arthur Rathjen on Tuesday and has put a foundation accountant on administrative leave. That employee was not identified as officials conduct an internal review, said Stephanie Marquis, a spokeswoman for the UW System.